Psycho’s Market Recap – March 11, 2022

Stocks closed Friday in the red to close out the fifth straight week of losses as market participants weighed new developments in Russia’s war in Ukraine and a weaker-than-expected US consumer sentiment report. 

Markets Today 

  • S&P 500 (SPY): -1.27%
  • Nasdaq (QQQ): -2.07%
  • Dow Jones (DIA): -0.63%
  • Russell 2000 (IWM): -1.60%
  • Volatility Index (VIX): +1.72%
  • Tesla (TSLA): -5.12%
  • Apple (AAPL): -2.39%
  • Alibaba (BABA): -6.68%
  • Didi Global (DIDI): -44.08%
  • Cloudflare (NET): -9.00%
  • Nio (NIO): -8.78%
  • Sea Limited (SE): -7.99%

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On Thursday, the Bureau of Labor Statistics’ Consumer Price Index (CPI), which measures the change in the price of a basket of consumer goods, was +7.9%, the fastest pace of inflation in over 40 years amid easy monetary policy, supply chain disruptions, and a spike in energy prices. Excluding volatile food and energy prices, so-called core inflation rose 6.4%, in line with estimates and the highest since August 1982. 

Inflation-adjusted average wages fell -0.8% last month, contributing to a -2.6% decline in the last 12-months. Though average wages have risen +5.1% in the last year, it is being outpaced by the pace of inflation. Energy prices rose 3.5% in February and accounted for roughly one-third the gain in the CPI, while shelter costs, which account for another third, rose +0.5% for a 12-month rise of +4.7%.

Keep in mind, this is the CPI for February. It does not account for the recent spike in the price of energy and other commodities stemming from Russia’s invasion of Ukraine. Russia’s invasion was launched on February 24 and sanctions were imposed after.

Chris Rupkey, chief economist at FWDBONDS, wrote in a note to clients “The inflation fire was already hot and now with war-driven inflation added to the mix, it will grow even hotter, setting off a scramble by the world’s central banks to pull back their stimulus earlier than expected. Markets were cheering this economic recovery and return to strong economic growth, but the cheers will turn to tears if the inflation outbreak pushes businesses and consumers to the brink of recession.”

Volatility has been a hallmark of the market so far in 2022, with the S&P 500 still down more than 10% for the year-to-date after first sliding into a correction last month. The CBOE Volatility Index, or VIX, which is often considered the “fear gauge” of the market, has held at a lofty level of more than 30.

U.S. consumer sentiment fell more than expected in early March as gasoline prices surged to a record high in the aftermath of Russia’s war against Ukraine, boosting one-year inflation expectations to the highest level since 1981.

The University of Michigan’s preliminary consumer sentiment index dropped to 59.7 in the first half of this month, the lowest reading since September 2011, from a final reading of 62.8 in February. Economists polled by Reuters had forecast the index falling to 61.4.

The third straight monthly decline reported by the University of Michigan on Friday pushed consumer sentiment to its lowest level in nearly 11 years. It said 24% of respondents “spontaneously mentioned the Ukraine invasion in response to questions about the economic outlook.”

In geopolitical news, the US and EU announced another set of measures aimed at increasing the economic pressure against Russia. 

The European Union will suspend Moscow’s privileged trade and ban exports to Russia of EU luxury goods, imports of iron and steel goods, and announced plans to wean off Russian energy by 2027.

 Along with other Western allies, including the United States, the bloc will revoke Russia’s “most-favored-nation” trade status. This would open the door to the bloc banning or imposing punitive tariffs on Russian goods and putting Russia on a par with North Korea or Iran.

Moreover, the EU is working to suspend Russia’s membership rights of leading multilateral institutions, including the International Monetary Fund and the World Bank. “We will ensure that Russia cannot obtain financing, loans, or any other benefits from these institutions.”

Highlights

  • A move from regulators to name foreign companies that may face delisting if they don’t comply with U.S. accounting standards has rattled some Chinese stocks. There is reason to believe more of the same announcements are coming.
  • Amazon (AMZN) announced a 20-1 stock split and a $10 billion share buyback program.
  • Rivian (RIVN) shares fell Friday intraday after the electric-vehicle company posted fourth-quarter sales that missed consensus expectations and offered a production outlook that fell short of some analyst estimates. The company delivered fourth-quarter revenue of $54 million, with this coming in below the $64 million expected. Funny to think this company was once worth over $100 billion.
  • Facebook and Alphabet unit Google on Friday defended their online advertising deal after EU and UK antitrust authorities launched investigations into the agreement that Google codenamed Jedi Blue.
  • The Russian franchisee of global pizza chain Domino’s has suspended royalty payments from its restaurants in Russia and will limit further investment in the country following Moscow’s invasion of Ukraine, it said on Friday.
  • Twitter (TWTR) will experiment with allowing companies to showcase up to 50 products for sale on their profiles, the company said on Wednesday
  • California utility PG&E Corp is partnering with U.S. automaker Ford Motor Co to bring ‘bidirectional’ charging electric vehicles (EV) to its customers, the utility’s chief executive said on Thursday.

 “In three words I can sum up everything I’ve learned about life: it goes on.” –Robert Frost